21/05/14 – Spike in ingot levels squeezes margin for re rollers

Recent fervour in long steel market primarily driven by anticipated shortage of sponge iron leading to hike in pencil ingot price levels is having lopsided impact. Rally in sponge iron and pencil ingot price by nearly 1000-1500 per tonne over the past 10 days has pushed rebar mills to the hilt. Secondary mill owners have hiked price levels by INR 1000-1500 per tonne recently to pass over the incremental cost to the buyer.

However slow construction activity in slackening economy has not generated interest by the buyers. Inventory levels at buyers end remain high and the mills are risking cutting down on production to keep inventory manageable. More seriously the conversion margin of mill owners from ingot to TMT of nearly INR 5000 per tonne is being squeezed since price hike of TMT is unlikely to sustain for long.

Since the mining clampdown is unlikely to be removed soon market promises to follow disconnect with the demand fundamentals culminating in capacity reduction and narrow margins.


Source – SteelGuru.com